Indian Affairs

The U.S. Department of the Interior recently published a notice of proposed rulemaking regarding possible revisions to the Indian Trader regulations.

Given the breadth of the authorizing statute, Interior will have great flexibility in crafting revised regulations, making this a profound opportunity for Indian Country to make headway on a variety of issues that have stifled economic development for generations.

Two prominent issues that should be addressed as part of this proposed rulemaking are dual taxation and general overreach by state regulators.

The problem known as “dual taxation” refers to the practice of state governments taxing tribal economic activity.Of course, as a general (albeit oversimplified) rule, state laws do not apply in Indian Country.However, in a series of cases beginning around the 1970s, the Supreme Court issued rulings, effectively, permitting state governments to sometimes impose taxes on on-reservation activity.For example, in Cotton Petroleum v. New Mexico, the court upheld New Mexico’s severance tax on natural resources produced on the Jicarilla Apache reservation—notwithstanding that the tribe was then imposing its own severance tax, which was previously upheld by the Supreme Court as a valid exercise of tribal sovereign authority in Merrion v. Jicarilla Apache Nation.

Dual taxation has created major economic problems for tribes.As a practical matter, if a state taxes on-reservation activities, the tribe is ousted from imposing its own tax, as dual taxation would increase the cost of goods to drive away business entirely.By rendering tribal taxation economically infeasible, state taxation has taken away what would otherwise be a valuable source of tribal revenue. The situation is even more unfair given that states typically provide few services on tribal reservations.

The second issue is overreaching by state regulators.This problem is commonly seen in the emerging sector of tribal e-commerce.Tribes own and operate a variety of internet-based businesses, such as those providing consumer finance services.States have reacted unfavorably to these ventures and have often attempted to impose regulations on tribal activity.Such regulatory overreach should not be permitted, as longstanding principles of federal Indian law makes it clear that state regulations generally do not apply to tribal entities.Nonetheless, states have repeatedly imposed regulatory regimes on tribes, interfering with tribal business operations and infringing upon sovereign rights to pursue economic development.

The proposed rulemaking offers an opportunity for tribes to overcome these challenges and focus on the betterment of their tribal communities.As stated above, the authorizing statute is broad—it permits Interior to promulgate rules regarding Indian trade “for the protection of said Indians.”The current regulations essentially do nothing to “protect” Indians, as they primarily concern the licensing of on-reservation retail stores operated by non-Indians.The regulations are also deeply anachronistic and must be modified.

The federal government has a trust responsibility to protect tribal sovereignty and promote tribal self-determination and economic development. Revising the Indian Trade regulations could substantially further the fulfillment of this duty.

Specifically, Interior should revise the regulations to explicitly prohibit state taxation and regulation of tribal economic activities.Doing so would promote tribal self-determination and economic development by encouraging tribes to operate their own businesses pursuant to tribal law, and in accordance with applicable federal laws.It would allow for tribes to develop valuable sources of revenue, which can be used to fund important government services, such as housing and education programs.

It is important for all tribes to participate during this rulemaking process to have their voices heard and to ensure that Interior moves forward with this process comprehensively and expeditiously. ♦